The wage structure in the U.S. public sector responded sluggishly to
substantial changes in private sector wages during the 1970s and 1980s.
Despite a large expansion in the college/high school wage differential during
the 1980s in the private sector, the public sector college wage premium
remained fairly stable. Although wage differentials by skill in the public
sector were fairly unresponsive to changes in the private sector, overall pay
levels for state and local government workers were quite sensitive to local
labor market conditions. But federal government regional pay levels appear
unaffected by local economic conditions. Several possible explanations are
considered to account for the rigidity of the government internal wage
structure, including employer size, unionization, and nonprofit status. None
of these factors adequately explains the pay rigidity we observe in the
government.